Granite Target Date and Multi-Risk Target Date update

May 12, 2014

Plan sponsors may wish to consider whether this investment news has any implications for the investment options available within their plans. Sun Life Assurance Company of Canada purchases units of the funds listed below, which are established as segregated funds in accordance with the Insurance Companies Act (Canada).

Effective April 2014, Sun Life Global Investments (Canada) Inc. (SLGI) has made enhancements to the Sun Life Financial Granite Series of Target Date Segregated Funds (Granite Target Date and Granite Multi-Risk Target Date Funds). The changes are a result of SLGI’s most recent annual fund lineup review and will be gradually implemented over the coming months.

What's changing?

The glidepath:

The Equity exposure will slightly increase across all glidepaths (no more than 5% at any year). This will result in the equity allocation of the Retirement fund increasing from 25% equity to 30% equity.

Within the Fixed Income asset class, there will no longer be any domestic bond exposure for funds that have more than 20 years to maturity. The long maturity funds will now have 100% foreign bond exposure and will gradually move to a 50% domestic / 50% foreign strategic mix at maturity.

Exposure to High Yield Bonds and Emerging Market Debt will be introduced to further diversify the Fixed Income exposure.

Exposure to Specialty Equity will increase throughout the glidepath to maturity – from the current 10%-0% to a 15%-5% strategic allocation for greater inflation protection and diversification.

Money Market exposure at maturity will decrease from 15% to 10%. It will gradually be added from 10 years to retirement with a final strategic weight of 10%.

Sun Life MFS U.S. Growth (New fund replacing Sun Life MFS U.S. Equity)

TD Hedged Synthetic U.S. Index

International Equity

Sun Life MFS International Value

Sun Life MFS International Growth (New fund added)

Sun Life Schroder Emerging Markets

Specialty Equity

Lazard Global Listed Infrastructure

Invesco Global Real Estate

*Includes High Yield Bond and Emerging Market Debt

New underlying fund additions:

The RBC Global High Yield Bond Fund will be added within the Fixed Income category to add another level of diversification. The fund has a target allocation of 50% global high yield bonds and 50% emerging market debt and seeks to provide a high level of income with the potential for modest capital growth. Current cash allocations will be used to introduce the new fund.

The Sun Life MFS U.S. Growth Fund will be added to the U.S. equity sleeve through a gradual transition from the MFS U.S. Equity Fund. This will allow the Portfolio Manager to make tactical shifts between the new growth fund and the TD Hedged Synthetic U.S. Index Fund which we view as having a value tilt.

The Sun Life MFS International Growth Fund will be added to the International sleeve through a gradual transition from the Sun Life MFS International Value Fund, again, allowing the Portfolio Manager to make tactical shifts. The strategic mix will be evenly split between the International Growth and International Value funds.

Update on Glidepaths available
Below is a chart showing the various glidepaths available in the Granite target date fund series.

How does this affect you and your plan members?
Plan members will not see a transaction in their accounts as these changes impact the underlying funds. However, the changes may result in a capital gain or loss to the underlying funds. For members in non-registered plans, the capital gain or loss will be combined with all other investment activity within the Granite series of Target Date segregated funds for the year and may be offset.

In making changes within the Granite Target Date and Granite Multi-Risk Target Date funds, consideration of the potential tax impact is always given. However, it is felt that this would be outweighed by the potential benefits to plan members of the enhanced structure.

We will communicate these changes, including potential tax implications, to your plan members via Morningstar® and on their 2014 Q4 statement messages in January.

Updated SIP
The updated SIPs will be available on Sun Life Financial's Plan Sponsor Services website at www.sunlife.ca/sponsor in May 2014. When logged into the website, under the Administration and reporting tab, select Group Retirement Services, then on the top navigation menu select Investments >> Governance reports.

Background
The Sun Life Financial Granite series of Target Date Segregated Funds include the Granite Target Date and Granite Multi-Risk Target Date Funds. The Granite Multi-Risk Target Date Funds offer three distinct glidepaths based on risk tolerance: conservative, moderate and aggressive. The Granite moderate glidepath is also the glidepath for the Sun Life Financial Granite Target Date Segregated Funds.

The Granite Target Date Funds are designed to deliver broad diversification by asset class, geographic region, industry, manager and style, while also incorporating niche asset classes such as real estate and infrastructure, and a mix of passive and active investments.